Kevin Ley & Anor v Douglas Suttle & Anor

The liquidators applied for permission to amend an Insolvency Act application notice seeking relief under sections 212 and 238 of the Insolvency Act 1986 to add particular allegations of misfeasance and unlawful distribution against former directors. The court considered the applicable rules on amendment (CPR r.17.1 and r.17.4), the Limitation Act 1980 (including section 21 and section 35) and the Mulalley four-stage approach to amendments made after the limitation period.

The judge held that proposed amendments to paragraphs (1), (2)(a) and (2)(b) did not introduce a new cause of action, or in any event arose out of the same or substantially the same facts already in issue, and therefore permission to amend those paragraphs was granted as a matter of discretion in accordance with the overriding objective. By contrast, the proposed amendment to paragraph (3) insofar as it pleaded an unlawful distribution in contravention of section 830 of the Companies Act 2006 was a new cause of action, relied on a hypothesis of sham arrangements and dishonest intent, was not shown to arise out of the same or substantially the same facts, and in any event failed the merits/threshold test. Permission to amend paragraph (3) was refused.

Background and parties:

• The Company, CL Realisations 2020 Limited, sold its shares to Marlixia Limited in September 2017 and the Company advanced a loan of £1,085,000 and subsequent further loans to Marlixia to fund that purchase. The First Respondent was a long-standing director and initial shareholder; the Second Respondent became a director and was sole director and shareholder of Marlixia. Marlixia was dissolved on 5 October 2021 and the Company later entered liquidation.

Nature of the application:

• The Applicants (the joint liquidators) sought permission to amend an Insolvency Act application notice (seeking relief under sections 212 and 238 IA 1986) to particularise allegations of misfeasance in respect of the original loan, two additional loans and dividends, and alternatively to plead an unlawful distribution contrary to section 830 Companies Act 2006.

Procedural posture:

• The original protective application was issued on 24 July 2023; the amendment application was served on 28 February 2024. The contested amendment hearing took place across listings on 13 December 2024, 8 January and 19 February 2025.

Issues framed:

1. Whether the contested amendments were outside the limitation period and, if so, whether they sought to add a new cause of action (CPR r.17.4 and section 35 Limitation Act 1980);
2. Whether the contested amendments amounted only to better particulars of existing claims or introduced new causes of action (comparison of essential factual elements);
3. If a new cause of action were asserted outside the limitation period, whether it nevertheless arose out of the same or substantially the same facts so as to permit amendment; and
4. If permissibility at law were established, whether the court should exercise its discretion to allow the amendment (CPR r.17.1(2)(b)), having regard to the overriding objective and merits threshold for an amendment.

Court’s reasoning and conclusions:

• The judge applied the Mulalley four-stage approach. For the allegations concerning the Loan and Additional Loans 1 and 2, it was not reasonably arguable that limitation barred the amendments in respect of the Second Respondent (the judge accepted the Applicants' submission that the reasoning in Burnden was engaged in relation to s21 LA 1980) and CPR r.17.1(2)(b) therefore applied. The court found that proposed amendments to paragraphs (1), (2)(a) and (2)(b) did not introduce new causes of action but were better particulars or arose out of substantially the same facts as already pleaded (including existing allegations about dividends and solvency) and permitted those amendments in the exercise of its discretion.
• The proposed paragraph (3) amendment seeking to plead an unlawful distribution under section 830 CA 2006 was held to introduce a new cause of action. The court rejected the proposition that the later witness statement could be read into the application notice so as to cure the omission; leaving an application open to substantive new allegations months after issue was not permitted. The unlawful distribution case required a particular factual basis (in effect alleging that the SPA and Loan were shams) and carried an inherent allegation of dishonesty; the pleaded alternative lacked coherence, adequate particularity and evidential support. Even if jurisdiction existed to allow it, the unlawful distribution allegation failed the merits and threshold tests and would be refused in the exercise of discretion.
• The judge clarified that refusal to allow the paragraph (3) amendment did not prevent the Applicants from relying on arguments about the accounting treatment of the loans for the purposes of their remaining claims.

Ancillary matters: Further submissions on costs and consequential directions were reserved.

This was a first instance amendment application. The court granted permission to amend paragraphs (1), (2)(a) and (2)(b) of the Insolvency Act application notice because those proposed amendments did not introduce a new cause of action and, alternatively, arose out of the same or substantially the same facts already in issue; the amendments were permitted in the exercise of the court's discretion under CPR r.17.1(2)(b) and the overriding objective. Permission to amend paragraph (3) to introduce an allegation of unlawful distribution contrary to section 830 Companies Act 2006 was refused because it introduced a new cause of action, did not arise out of the same or substantially the same facts, was not properly particularised or supported by evidence, relied on an allegation of sham/dishonesty and failed the merits threshold; in all events such an amendment would be refused in the exercise of the court’s discretion.